Free Microeconomics MCQs with Answers

• A. There may be long lines of buyers waiting for apartments
• B. Landlords may discriminate among apartment renters
• C. Landlords may be offered bribes to rent apartments
• D. there will be a storage of housing
• E. the quality of apartments will improve

Explanation: Rent controls below equilibrium create a housing shortage, queues, discrimination, bribes, and often lower maintenance or quality.

• A. above the equilibrium price
• B. below the equilibrium price
• C. precisely at the equilibrium price
• D. at any price because all price ceilings are binding constraints

Explanation: A price ceiling binds only when it prevents the market from reaching equilibrium, which requires setting it below the equilibrium price.

• A. Wages rise, and rental rates fall
• B. Wages rise, and rental rates rise
• C. Wages fall, and rental rates rise
• D. Wages fall, and rental rates fall

Explanation: The destruction of people reduces labor supply, pushing wages upward. Since the surviving capital becomes relatively more abundant, its…

• A. left and decreases the wage
• B. right and decreases the wage
• C. right and increases the wage
• D. left and increases the wage

Explanation: A higher automobile price raises the value of the output produced by autoworkers, shifting the derived demand for their labor to the…

• A. the wage, the rental price of capital and the rental price of land are all equal
• B. the marginal product of labor equals zero and the production function is maximized
• C. the value of the marginal product of labor equals the wage
• D. the marginal product of labor equals the wage

Explanation: A profit-maximizing firm hires labor while the value of the marginal product of labor exceeds the wage.

• A. Slopes downward because an increase in the production of output reduces the price at which the output can be sold in a competitive market, thereby reducing the value of the marginal producing the value of the marginal product as more of the factor is use
• B. Slopes downward due to the factor's diminishing marginal product
• C. slopes upward due to the factor's increasing marginal product
• D. is perfectly elastic (horizontal) if the factor market is perfectly competitive

Explanation: A firm's factor demand slopes downward because the factor's marginal product normally diminishes as more of it is employed, reducing its…

• A. supply curve of capital
• B. demand curve for capital
• C. production function
• D. marginal cost curve

Explanation: A competitive firm hires capital up to the point where the value of its marginal product equals the rental price of capital.

• A. cause a reduction is output
• B. have no effect on output
• C. increase the marginal product of the factor
• D. generate ever smaller amounts of output

Explanation: Diminishing marginal product means each additional unit of an input adds less to total output than the previous unit.

• A. interest
• B. dividends
• C. increases in stocks of goods
• D. retained earnings

Explanation: Interest, dividends, and retained earnings are returns to capital ownership.

• A. have skills that are in relatively scarce supply
• B. produce output for which there is great demand
• C. usually have little capital with which to work
• D. are usually highly paid

Explanation: Workers with a high value of marginal product generally have scarce skills, produce highly demanded output, and earn high wages.

• A. decrease the prosperity of the firm but increases the prosperity of the factors hired by the firm
• B. decreases the prosperity of both the firms and the factors hired by the firm.
• C. increases the prosperity of both the firm and the factors hired by the firm.
• D. increases the prosperity of the firm but decreases the prosperity of the factors hired by the firm.

Explanation: Higher demand for the firm's output raises its price and usually increases production, profits, and the value of the marginal products of…

• A. an amount equal to the price of output times total output
• B. the amount allocated by the political process
• C. an equal share of output
• D. the value of its marginal product

Explanation: With competitive input and output markets, a profit-maximizing firm hires each factor until its factor price equals its value of marginal…

• A. a decrease in the number of apple pickers employed
• B. an increase in the value of the marginal product of apple pickers
• C. an increase in the price of apples
• D. an increase in the wage of apple pickers

Explanation: Greater demand for apples raises their price, increasing the value of the marginal product and demand for apple pickers.

• A. the price of the output times wage of labor
• B. the price of the output times the marginal product of labor
• C. none of these answers
• D. the wage of labor times the quantity of labor
• E. the wage of labor times the marginal product of labor

Explanation: The value of marginal product converts the extra physical output from one more worker into money value by multiplying marginal product of…

• A. labor, land, and capital
• B. water, earth and knowledge
• C. money, stocks and bonds.
• D. management finance and marketing

Explanation: The basic factors of production are land, labour and capital, which provide natural resources, human effort and produced means of…

• A. in response to a price increase is less elastic than the elasticity of demand in response to a price decrease
• B. is perfectly elastic if price increases and perfectly inelastic if price decreases
• C. is constant regardless of whether price increase of decrease.
• D. in response to a price increases is more elastic than the elasticity of demand in response to a price decrease

Explanation: In the kinked-demand model, rivals usually follow a price cut but do not follow a price rise.

• A. The market for copper, where there are very few producers and the product is standardized.
• B. The fast-food market where there are a large number of producers but the demand for fast food is inelastic
• C. The coffee market where the product is standardized and there are a large number of coffee growers.
• D. The automobile industry, where there are few producers but there is great product differentiation.

Explanation: Cartels are easiest to organize when there are few producers and the product is standardized, because cheating is easier to detect and…

• A. price leadership
• B. price concentration
• C. collusion
• D. game theory,

Explanation: Collusion is an agreement among firms to coordinate decisions such as price or output.

• A. a colluding industry
• B. a merged industry
• C. a concentrated industry
• D. a natural monopoly

Explanation: A concentrated industry has a small number of firms controlling a large share of the market.

• A. perfect competition
• B. monopolistic competition
• C. oligopoly
• D. monopoly

Explanation: An oligopoly consists of a few significant firms whose decisions affect market price and whose actions are interdependent.